Fifth Standing Committee on

Delegated Legislation

Thursday 29 March 2001

[Mrs. Ray Michie in the Chair]

Local Government Finance (England) Special Grant Report No. 80

9.55 am

The Minister for Local Government and the Regions (Ms Hilary Armstrong): I beg to move,

That the Committee has considered the Local Government Finance (England) Special Grant Report No. 80.

The Chairman: With this it will be convenient to consider the draft Non-Domestic Rating (Public Houses and Petrol Filling Stations) (England) Order 2001.

Ms Armstrong: I am delighted to serve under your chairmanship again, Mrs. Michie. We got to know one another quite well in this relationship during the passage of the Bill that is now the Local Government Act 2000. I suspect that you are hoping that we do not speak for as long as we sometimes did then. I will endeavour to proceed quickly with the statutory instrument, which is partly in response to the current foot and mouth disease epidemic.

The report specifies the special grant that will support the costs to local authorities of granting rate relief to small businesses that are suffering financially due to the outbreak of foot and mouth disease. Local authorities already have discretionary powers under the Local Government Finance Act 1988 to grant rate relief up to 100 per cent. for any ratepayer who is suffering hardship for any reason. It is available to all businesses that have suffered a significant loss of trade due to the foot and mouth outbreak.

Farms are already exempt from rates altogether, but many other businesses have been affected. Those include other agricultural and ancillary businesses, food processors and retailers, hotels and other tourist businesses, restaurants and pubs, transport and haulage firms. All are eligible for rate relief, whether they are affected directly or indirectly by the outbreak. That includes rural areas where there has been little or no incidence of the disease, but where businesses have been affected by precautionary measures or reduced trade, for example in tourism.

Rate relief for hardship is usually 75 per cent. centrally funded, with local authorities meeting 25 per cent. of the cost. However, we recognise that funding even a quarter of the cost of hardship resulting from the foot and mouth outbreak would place a heavy burden on rural local authorities, so we propose to increase central funding from 75 per cent. to 95 per cent. of the costs of relief given to small businesses affected by foot and mouth.

That extra funding will be available for 151 rural local authorities in England, in respect of businesses with rateable values of up to £12,000. In those areas, councils will fund just 5 per cent. of the cost of rate relief for those small businesses. That will help councils in the worst affected areas, directly or indirectly, to provide rate relief to smaller businesses: 77 per cent. of ratepayers in those areas have rateable values up to and including £12,000.

The current 75 per cent. funding is applied through regulations setting out local authorities' contributions to the national rate pool. Those contributions are simply reduced by 75 per cent. of any hardship relief given, leaving authorities to contribute the remainder. However under the terms of the 1988 Act, those regulations must be made by the end of the December preceding the start of the financial year. It is therefore too late to change them for this year or that starting on 1 April 2001. That is why we are providing the increased funding for relief due to foot and mouth by means of a special grant.

The grant will cover 20 per cent. of the cost of the relief given, in addition to the 75 per cent. that is already centrally funded. Rate relief will still be available to larger businesses and those in other areas, at the discretion of local authorities, where central funding will remain at 75 per cent. We are taking other steps to help businesses affected by foot and mouth disease through the rating system. Councils can already defer rate payments to help businesses in the short term. To make it easier for councils to do so, we will be deferring part of the payments due to be made by those 151 rural authorities into the national rate pool.

We will also be extending the 31 March deadline for business rate appeals in the same areas. Ratepayers in the 151 local authorities will now have until 30 June to make appeals against their 2000-01 rateable values. They can do so for three reasons: to secure a temporary reduction in value to reflect the effects of foot and mouth disease, or because they are not happy with the new value given at the April 2000 revaluation, or because there has been some other change to the property affecting its value. Appeals will still be possible after the new deadline, but their effect will not be backdated beyond 1 April 2001. We will shortly be making regulations under the negative resolution procedure to give effect to that change.

I turn now to the mandatory rate relief for village pubs and petrol filling stations. Last September we published the Green Paper ``Modernising Local Government Finance''. That included a proposal to extend the 50 per cent. mandatory element of the village shops rate relief scheme to certain pubs, petrol filling stations and food shops. The Non-Domestic Rating (Public Houses and Petrol Filling Stations) (England) Order 2001 will implement the relief for pubs and petrol filling stations. Primary legislation is needed to extend it to food shops and that is contained in the Rating (Former Agricultural Premises and Rural Shops) Bill, which was introduced on 16 March.

All small businesses in designated villages with populations below 3,000 are already eligible for discretionary rate relief of up to 100 per cent, provided the local authority feels that they are of benefit to the community. In addition, the existing legislation specifies that the sole general store or post office with rateable values up to £6,000 should receive 50 per cent. mandatory relief, which the local authority can top up to 100 per cent.

The Green Paper proposed that mandatory relief should also be given to singly owned pubs and petrol stations that were either the sole retail outlet or also provided a community service such as cash-back facilities or meeting rooms, and that had a rateable value of no more than £6,000. That proposal was widely welcomed, although there were some concerns over the detail, which was felt to be unnecessarily restrictive. The order therefore allows mandatory rate relief to any pub or petrol filling station that is the sole such outlet in the village. There will be no restrictions on ownership and no requirement to provide specific community services. Where there is just one pub or petrol station in a village, it is in itself providing a service to the community, which is worthy of support. We will also be increasing the rateable value threshold to £9,000, as pubs and petrol stations tend to occupy larger premises than shops.

Although this measure is not directly related to the foot and mouth disease outbreak, it will provide additional help to these important rural businesses in the short term and will help to secure services to village communities in the longer term. As I have said, our proposal to extend mandatory relief to all food shops with rateable values up to £6,000 in qualifying villages will require primary legislation, because it cuts across the provisions in the 1988 Act limiting mandatory relief to the sole general store selling mainly food and household goods. The measure will also implement a scheme of rate relief for new, small-scale farm diversification enterprises. That was first proposed in the action plan for farming last March and was the subject of consultation last summer and autumn. It will provide 50 per cent. mandatory rate relief for five years for premises with rateable values up to £6,000; previously, they benefited from the agricultural exemption from rates. Local authorities may top up the relief to 100 per cent. of the rates bill. That would help farmers to move into other activities, by reducing the costs of doing so.

The two measures will provide welcome financial support to small businesses in rural areas. The special grant will meet the immediate need to help rural businesses affected by the foot and mouth outbreak and will provide additional support to rural local authorities, making it easier for them to give rate relief to small businesses affected directly or indirectly by the outbreak. That is in addition to the 75 per cent. of such costs that is already centrally funded.

The Non-Domestic Rating (Public Houses and Petrol Filling Stations) (England) Order 2001 will provide support to businesses that are the last such outlets in a rural settlement. It is intended to help ensure that isolated settlements continue to have access to essential community services and was first proposed in the Green Paper last September, which was revised in light of responses to that consultation. That additional help to rural communities will be even more welcome at this difficult time.

I commend both measures to the Committee.

10.7 am

Mr. Damian Green (Ashford): Good morning, Mrs. Michie. I am grateful to the Minister for her clear and full explanation of the two measures. They are important. We welcomed the Government's announcement to the House last week of their intention to introduce them, as our questions and doubts about the rural taskforce have centred on what it is achieving and who is benefiting from its activities.

I should like to ask the Minister several detailed questions, all of which relate to an underlying doubt about whether the rural taskforce is actually meeting the scale of the crisis and whether it is meeting it quickly enough. At a time when the foot and mouth crisis has gone beyond the directly affected farming communities, it is clear that any measures that are taken must be all-embracing and generous if they are to meet the scale of the underlying crisis.

The Minister knows some of the terrifying figures. In Cumbria, tourism-related industries alone are losing £10 million a week. There are fears that, with Easter approaching, a third of the tourist income in Devon might disappear. Foreign visitors have been deterred. Tour operators estimate that bookings are down by more than 38 per cent., with cancellations at record levels.

Away from rural areasto pick up a point that I intend to return to in a momentthere are businesses as badly affected as those that are covered by the measures. Edinburgh zoo has been closed since 26 February. It estimates that it has lost approximately £160,000, a figure that might rise to about half a million pounds if it has to remain shut during April. The Road Haulage Association estimates that, throughout the countryparticularly in rural areas but also elsewherelivestock hauliers are losing up to £5 million a week. We welcome the measures, but we question whether they provide an adequate response to the crisis that has already been revealed, let alone what might hit the country during the coming weeks and months.

If the orders are to meet the gravity of the growing crisis facing businesses in rural areaswhether or not they have anything to do with agriculturethey must provide immediate relief on cash flow, which will be a huge problem during the next few weeks, and the long-term reassurance that banks and other lenders will give rural businesses a sympathetic hearing. Like everyone else, banks are aware of the scale of the crisis and, I hope, of their responsibilities, but the Government must take action to ensure that banks know that they should not only provide a sticking plaster but, in adopting more sympathetic lending postures, enable businesses to survive and to continue operating after the crisis.

It is important for the Committee to assess whether the measures meet those two criteria. To help us, will the Minister answer detailed questions about the operation of the orders? In particular, how many businesses do the Government estimate will require the relief? I know that the orders state that 77 per cent. of 494,000 rural businesses will be eligible, but one assumes that the Government have estimated how many will take up the benefit. One order refers specifically to garages and pubs; how many of those will be included in the terms of that order and how many can be expected to apply and benefit?

How much will the relief cost central Government and local government? The Minister will be aware of the pressures on local government finance, and it would be useful to have the costs broken down into those two components. I also want to know why the Government have chosen a limit of £12,000. Will that not mean that many affected businesses will not benefit from the measures, and will not loading the cost of supporting larger businesses discourage local authorities? My concern is shared by the Local Government Association, which points out that many businesses with rateable values above £12,000 are those that are most at risk. It cites various examples, particularly in areas that are suffering most from the crisis. The Sandy Bay caravan park in Devon has a rateable value of £1 million, and a large agricultural warehouse in Carlisle has one of £127,000. An auction house in Penrith has a rateable value of more than £100,000, and there are many small hotels in the Eden valley in Cumbria with rateable values of well over £12,000. Those businesses are at the centre of areas most devastated by the foot and mouth crisis, yet they seem to be excluded from help by the orders.